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Colorado’s economic outlook improves

Schools may bespared budget ax

A rosier revenue forecast from state economists Tuesday spurred Gov. John Hickenlooper to back off a plan to impose additional cuts to K–12 spending.

The economists, including one from the governor’s own budget office, predicted the state will see about $231 million in revenue more next year than they thought just three months ago, when their last economic forecast was released.

The economists said the state has seen modest increases in employment, and even better hikes in consumer spending. Both have resulted in higher-than-expected increases in income, sales and use taxes, they said.

“We’re seeing stronger employment and business activity,” said Henry Sobanet, director of the governor’s Office of State Planning and Budgeting. “We’re still in a modest recovery, and we remain below peak levels in employment and revenue in the general fund, but obviously this change is most welcome.”

Sobanet and Natalie Mullis, chief economist for the Legislative Council, said the state could see about $470 million more in revenues than it had to spend in the current fiscal year, which ends June 30.

Though the governor no longer will push for $89 million in additional cuts to public schools, legislative budget writers wouldn’t say if the favorable revenue predictions mean the state would be able to restore some of the $230 million in cuts lawmakers have made to K–12 education over the past two years.

As a result, local school officials said there’s no reason to jump for joy just yet.

District 51 Superintendent Steve Schultz said the district doesn’t want to scramble for last-minute budget cuts next spring if the revenue projections turn out to be overly optimistic.

“We still have to approach it as though there’s going to be the $3 (million) to $5 million reduction,” he said.

The Legislature will get one more economic forecast in March before putting together next year’s budget. That’s the only one that really matters to state lawmakers because the annual budget is based on it.

Other than the state’s unemployment figures, which remained relatively flat last month, so far this year Colorado has had substantial revenue increases in sales taxes (12 percent), individual income taxes (10 percent) and corporate income taxes (5.9 percent).

The state’s use tax, which is a tax on tangible property not otherwise subject to a sales tax, increased 22 percent, the two economists said.

Still, Sobanet and Mullis said real estate prices continue to fall, and banking and credit markets will remain stagnant over the next year or two.

“And what’s happening in Europe is a huge risk to our forecast,” Mullis said. “At the very least, U.S. exports to Europe and potentially to other parts of the world are going to slow because of what’s happening. What we don’t know is how Europe will resolve its (debt) crisis.”

For western Colorado, the quarterly forecast didn’t change much from recent ones in the past couple of years, Mullis said.

While the region also has seen increases in sales and use taxes, and an improvement in unemployment levels, it continues to lag behind the rest of the state in its recovery, Mullis said.

She said the number of oil and gas wells in the state has increased in the past year, but that growth was almost exclusively restricted to Weld County on the Eastern Plains.

Sobanet said severance tax revenues from that drilling activity will net the state about $198 million during this fiscal year, but dip slightly next year.

Natural gas production also is projected to increase over the next few years because of an increase in drilling rigs, but the abundance of supply in the state and nationwide will keep natural gas prices below $4.50 per thousand cubic feet into 2014, he said.